Antonio Jimenez Perez’s Post

The SEC recently charged Silvergate Capital Corporation for misleading investors about the strength of the firm’s Bank Secrecy Act/Anti-Money Laundering compliance programme. As we await clearer guidelines on crypto regulation from the US authorities, Ryan Stibich emphasises that cases like these highlight the critical importance of maintaining rigorous compliance standards. Learn more here: https://lnkd.in/eCNqsKAp #SEC #FinancialCompliance #FinancialRegulation

The SEC recently charged Silvergate Capital Corporation for misleading investors about the strength of the firm’s Bank Secrecy Act/Anti-Money Laundering compliance programme. As we await clearer guidelines on crypto regulation from the US authorities, Bovill Newgate's Ryan Stibich emphasises that cases like these highlight the critical importance of maintaining rigorous compliance standards. Learn more here: https://lnkd.in/eMC_SNMy #SEC #FinancialCompliance #FinancialRegulation

🚨 Crypto-friendly Silvergate Bank Fined $63M Over AML Failures 🚨 Silvergate Bank is paying $63 million in penalties to California and the Federal Reserve Board after failing to monitor over $1 trillion in customer transactions. 🏦💸 The SEC charged the bank and its holding company, Silvergate Capital Corp., with misleading investors and violating several regulations. Silvergate’s former execs, Alan Lane and Kathleen Fraher, settled charges without admitting guilt, agreeing to hefty fines and bans. Meanwhile, charges against Antonio Martino, the former CFO, are pending. ⚖️ Silvergate’s missteps included failing to properly oversee high-risk crypto transactions, leading to misleading statements about its compliance programs amid the FTX scandal. The bank, which announced its voluntary wind-down in March 2023, said these settlements help conclude investigations and aid its orderly closure. 🏦🔚 Provenance we specialise in transaction monitoring for crypto transactions. We support regulated financial service providers in building robust KYT framework for fiat and crypto risk-based management and compliance to effectively combat financial crime and avoid regulatory infringements/fines. The full article here: https://lnkd.in/dj_K2hr9 #Crypto #Finance #Regulation #SilvergateBank #SEC #AML #Compliance #FTX

On July 1, 2024, the US Securities and Exchange Commission (SEC) announced charges against Silvergate Capital Corporation, its former CEO Alan Lane, former Chief Risk Officer Kathleen Fraher, and former Chief Financial Officer Antonio Martino. The charges allege that these individuals misled investors regarding the effectiveness of Silvergate’s Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program and the monitoring of high-risk crypto customers, including FTX. Key Points: 1. Misleading Compliance Statements: - From November 2022 to January 2023, Silvergate, Lane, and Fraher falsely assured investors of an effective BSA/AML compliance program. - In reality, Silvergate’s system failed to monitor over $1 trillion in transactions on its Silvergate Exchange Network, missing nearly $9 billion in suspicious transfers among FTX and its related entities. 2. Financial Misrepresentations: - Silvergate and Martino misrepresented the company’s financial health during a liquidity crisis post-FTX collapse. - They understated losses from expected securities sales and falsely claimed to be well-capitalized as of December 31, 2022. 3. Settlements and Penalties: - Silvergate has agreed to a final judgment, including a $50 million civil penalty and a permanent injunction. - Lane and Fraher agreed to permanent injunctions, five-year officer-and-director bars, and civil penalties of $1 million and $250,000 respectively. - Martino faces charges of violating antifraud and books-and-records provisions and aiding and abetting Silvergate’s violations. 4. Parallel Actions: - The Federal Reserve Board (FRB) and the California Department of Financial Protection and Innovation (DFPI) have also announced settled charges against Silvergate. Additional Information: The SEC’s investigation was led by a dedicated team of investigators and supported by various regulatory bodies. The litigation against Martino will proceed under the leadership of seasoned SEC litigators. Stay informed on the latest regulatory updates and enforcement with Global Regulatory Insights. #SEC #Silvergate #Compliance #CryptoRegulation #FinancialServices #GRI

If you have not had a chance to skim the SEC's recent complaint against Silvergate management, it is an interesting and even an important read. Silvergate, of course, was a bank that faced forced deleveraging due to FTX's failure and liquidated voluntarily. But its liquidation reminded how a forced deleveraging could result in an asset firesale of underwater government securities that was corrosive to bank capital. It set the stage for several large US bank failures due to excess interest rate risk in March 2023. One important aspect of the SEC's complaint is its argument that Silvergate's CFO was deficient with respect to conformance with US GAAP expectations on reporting other-than-temporary impairment (OTTI). The SEC's complaint reminds that US GAAP requires banks quarterly to evaluate AFS securities and determine whether AFS fair value was < amortized cost. If so, GAAP requires banks to determine whether impairment was temporary, or OTTI, and provides steps to identify whether OTTI had occurred. From the SEC complaint's, sections 177-179: 177. First, “[i]f an entity intends to sell the debt security (that is, it has decided to sell the security), an other-than-temporary impairment [OTTI] shall be considered to have occurred.” ASC-320-10-35-33A. 178. Second, “[i]f an entity does not intend to sell the debt security, the entity shall consider available evidence to assess whether it more likely than not will be required to sell the security before the recovery of its amortized cost basis (for example, whether its cash or working capital requirements or contractual or regulatory obligations indicate that the security will be required to be sold before a forecasted recovery occurs). If the entity more likely than not will be required to sell the security before recovery of its amortized cost basis, an other-than-temporary impairment [OTTI] shall be considered to have occurred.” 179. In this context, for each security for which an OTTI was deemed to have occurred, the amount of OTTI recognized was to be based on the difference between the amortized cost basis and the fair market value of the security as of the date of the Bank’s financial statements.” To put it simply, the SEC's complaint is that Silvergate knew it needed to liquidate AFS securities at a loss but did not reach an OTTI conclusion timely. This complaint reminds banks, bank regulators, investors and auditors of US GAAP's expectations that if it is more likely than not that AFS securities need sale, then OTTI needs to be recorded timely. Delayed recognition of OTTI can increase a bank's publicly reported capital and could be misleading with regards to US GAAP reporting. Which begs the question -- is the seldom exercised AOCI "opt-in" for US banks with assets < $700 billion for bank regulatory capital appropriate? Can RAP better align with GAAP? #banks #capital #unrealizedlosses Read more at: [Link to SEC's complaint](https://lnkd.in/gc4MaM3p)

Something interesting and potentially provocative: Two former Solicitor Generals, Paul Clement (G.W. Bush administration) and Donald B. Verrilli (Obama administration) filed a joint amicus brief in Custodia Bank's appeal (US Court of Appeals for the Tenth Circuit), asserting that federal regulators have "waged a concerted, coordinated campaign to debank the industry". This comes a little over a year after the NYDFS and FDIC denied the existence of a coordinated chokepoint operation on crypto and crypto-related entities following the closure of Signature Bank New York (SBNY), and after the Federal Reserve Board denied Custodia Bank's application to become a member of the Federal Reserve System (master account list). Background on Silvergate per Congressional Research Service Insights 12125 & 12148, and Oaktree's "Lessons from Silvergate" memo: Silvergate began providing services to crypto-industry clients in 2016 and was considered a crypto-centric bank by the time of its 2019 IPO. More than 60% of clients were institutional. Roughly 83% of depositors were directly tied to crypto markets. After FTX and FTX counterparties were financially distressed, Signature attempted bond liquidation to cover withdrawals. Realized losses compounded the liquidity crunch, and on March 3, 2023, Signature voluntarily closed and began liquidation. CRSI 12148: - NY DFS Superintendent Adrienne Harris explainedthat “attributing Signature’s failure to crypto was a‘misnomer’ and that crypto withdrawals during the bank run were proportional to the bank’s total crypto deposits.” - "It is tempting to look for causal relationships between banking failures and specific crypto industry failures. Some banks worked with high-profile crypto company failures, including Celsius and FTX, yet exposure was somewhat limited.“

Hello, and welcome to Thursday. “Negligence-based fraud” There have already been more than enough shocking details published on the collapse of the cryptocurrency exchange FTX and the fall of its founder, Sam Bankman-Fried. But the auditing world was treated to a few more last week, courtesy of the Securities and Exchange Commission, when it announced it had settled a case of “negligence-based fraud” with Prager Metis, FTX’s former auditor. Forgive us for sounding like Stefon from SNL, but this case had everything. Questionable due diligence. Unreviewed workpapers. An engagement partner who “fundamentally did not understand” his client’s industry. In short, the SEC alleged that Prager Metis—the 59th largest CPA firm, according to Inside Public Accounting—“falsely misrepresented” that its 2021 and 2022 audits of FTX followed Generally Accepted Auditing Standards (GAAS). While Prager Metis didn’t admit or deny the SEC’s findings, the firm agreed to pay a $745,000 civil penalty, accept limits to taking on new audit clients, and have an outside consultant review its auditing policies and procedures. The agreement is subject to court approval. Today’s top finance reads. Stat: Over 90%. That’s the percentage of the insurance industry’s uptick in fossil fuel securities investment coming from just two firms, State Farm and Berkshire Hathaway. (The Wall Street Journal) Quote: “We allege that Visa has unlawfully amassed the power to extract fees that far exceed what it could charge in a competitive market.”—US Attorney General Merrick Garland, in announcing the DOJ was suing Visa over “illegal monopoly over debit payments” (CNBC) Read: Creators on e-commerce sites like Etsy are making money from increasingly “unhinged” political campaign T-shirts. (The Washington Post)

Yesterday's charges against Silvergate Capital and several former executives show that the U.S. Securities and Exchange Commission and Federal Reserve Board are continuing to focus enforcement efforts on senior executives. 🔹 The SEC charged Silvergate Capital’s former CEO Alan Lane, former CRO Kathleen Fraher, and former CFO Antonio Martino, highlighting an aggressive focus on individual actions and accountability. 🔹 Lane and Fraher's Alleged Misrepresentations: The SEC alleges that despite significant deficiencies in Silvergate’s BSA/AML compliance program, Lane and Fraher misrepresented the effectiveness of their oversight. They falsely assured investors of robust monitoring while failing to detect nearly $9 billion in suspicious transactions among FTX-related entities. 🔹 Martino's Financial Misconduct: Former CFO Antonio Martino allegedly approved misleading financial statements, understating Silvergate’s losses during a liquidity crisis and misrepresenting the company’s stability, which concealed the true extent of the bank’s financial troubles from investors. 🔹 Severe Penalties: Lane and Fraher agreed to pay significant fines ($1 million and $250K) and to bans from holding officer positions, while Martino faces serious allegations including aiding and abetting fraud. 🔹 Increased Individual Scrutiny: This case underscores the SEC and FRB's focus on holding individual executives accountable for corporate misconduct. It serves as a critical reminder for senior executives at regulated companies that they can face personal liability as a result of a company's compliance missteps. As seen here, even broad statements about a company's "robust compliance program" can serve as the basis for charges if regulators later decide the program wasn't robust enough. 💡 Why This Matters: Executives in banking and fintech must be vigilant about compliance and accurate reporting. The SEC and FRB's aggressive stance on individual accountability highlights the importance of personal diligence in avoiding severe repercussions. #SEC #FRB #IndividualAccountability #Compliance #FinancialRegulation #CryptoBanking #ExecutiveRisk

Fed ends enforcement action against Silvergate, but legal challenges remain The U.S. Federal Reserve terminated enforcement actions against Silvergate Bank and Silvergate Capital Corporation on July 26. The decision was made in light of the bank's successful wind-down, refunds to customers, and the cessation of banking operations. The story of Silvergate's downfall The collapse of Silvergate Bank occurred in March 2023 amid widespread speculation about the bank's dire financial condition. The situation was exacerbated by the delayed publication of the Form 10-K in early March, which led to a sharp 31% drop in Silvergate's stock. Causes of the collapse and consequences The main factors that led to Silvergate's collapse were: -- The aftermath of the collapse of the FTX exchange -- Mass withdrawal of funds by large clients -- High levels of short positions in the company's stock (72% of shares were borrowed to open short positions) As a result of these events, Silvergate declared self-liquidation on March 8, 2023. The Federal Reserve supervised the liquidation process to maximize refunds to customers. Ongoing Legal Issues Despite the cessation of enforcement actions by the Federal Reserve, Silvergate continues to face significant legal challenges. In March 2024, federal Judge Ruth Bermudez Montenegro issued a ruling allowing a class action lawsuit against Silvergate to proceed. That suit accuses the bank of facilitating FTX's fraudulent schemes. The situation escalated in July 2024 when the SEC filed a separate lawsuit against Silvergate Capital Corporation. In that lawsuit, the SEC accuses the company of complicity in fraud related to FTX's activities. These proceedings demonstrate that the legal ramifications of the collapse of Silvergate Bank continue to unfold despite the completion of the formal bankruptcy.

Discover our latest Fraud Blog post where Peter Binder dives into Michael Lewis’ gripping book, Going Infinite. This compelling account chronicles the meteoric rise and dramatic fall of the Crypto King, Sam Bankman-Fried. You can view the Fraud Blog post here - https://lnkd.in/ePCVcM8K #FraudBlog #Crypto #Finance #BookReview #SamBankmanFried #GoingInfinite #MichaelLewis #FraudPrevention